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Members of the Upper House of Parliament will no longer be made peers and the House of Lords itself will change its name under proposals for reform set out by the Government.

Leader of the Commons Jack Straw set out recommendations for a slimmed-down chamber of 540, including for the first time a proportion of directly-elected members.

But he made clear that the transition to the new arrangements will not be complete until the middle of this century, with numbers of life peers dwindling gradually as they retire, resign or die.

The 92 places for hereditary peers will be scrapped, but Mr Straw left open the question of whether those currently sitting in the Lords should be removed immediately – and, if so, whether they should be offered any compensation.

In a White Paper, Mr Straw said he favoured a House divided 50-50 between elected and appointed members, with some seats reserved for Church of England bishops.

But he accepted there were “strongly-held and conflicting views” – even within Cabinet – on the House’s composition and said the final decision will rest with Parliament.

MPs will have a free vote before Easter on options ranging from a fully-appointed chamber to a 20%, 40%, 50%, 60%, 80% or 100% elected element. An innovative “alternative vote” system will be used to ensure they reach a decision, avoiding the deadlock of 2003 when all options for reform were rejected.

Mr Straw said that the proposals set out in his White Paper represented “the best opportunity to make progress that we have had for many decades”. He warned that failure to reach agreement would put reform on hold for a generation.

But he came under fire in the Commons, where Conservative spokeswoman Theresa May described the package as a “lowest common denominator” solution which would satisfy no-one and perpetuate the problem of cronyism.

However the proposals were welcomed by the Liberal Democrats, with constitutional affairs spokesman Simon Hughes saying: “In the 21st century the only way that both Houses of Parliament can be legitimate is for them to be made up of people elected directly by the people.”